Yen short positions top 2 trillion yen — is a repeat of the 2024 carry trade unwind at hand?

It was the spring of 2025, and fear of a yen carry trade unwind had yet to fully subside. Less than a year had passed since the shock of August 2024, and the Bank of Japan was signaling another rate hike. Markets grew anxious that global capital could once again flee en masse.

Yet the Bank of Korea's internal read at the time was calmer than many expected. Officials were not particularly worried about a repeat of the August 2024 shock — and their reasoning had less to do with whether the Bank of Japan would actually raise rates than with the positioning that had built up in the market.

Investors had already been net buyers of yen futures, anticipating yen strength. Even if the Bank of Japan did raise rates, there were not many short positions that would need to be rapidly unwound. The fuse for a chain-reaction liquidation, officials argued, simply was not there.

That judgment proved correct. The Bank of Japan raised its benchmark interest rate to 0.75% in December 2025 — the highest in nearly 30 years — yet global financial markets held steady.

Now, in the summer of 2026, the same question must be asked again. What has changed is not just the Bank of Japan's rate level. The speculative yen position that was net long in 2025 has flipped to a net short exceeding 2 trillion yen ($12.7 billion). The lopsided positioning now resembles conditions just before the yen carry trade unwind that roiled markets in August 2024. The fuse that was absent last year has been laid again.

According to the Commitments of Traders report released by the US Commodity Futures Trading Commission on Saturday, the speculative (non-commercial) net position in yen futures stood at minus 163,400 contracts as of Tuesday — with shorts overwhelming longs. Each yen futures contract represents 12.5 million yen, putting the aggregate net short position already above 2 trillion yen.

The speculative net position in yen futures reflects the positioning of participants trading for investment or speculative purposes rather than hedging. It is a widely watched gauge of market sentiment, showing whether hedge funds and other speculative traders on the Chicago Mercantile Exchange are betting on yen strength or weakness.

The numbers carry a familiar ring. A comparable level of net short yen positioning had accumulated just before the Asian equity rout of August 2024, widely referred to as "Black Monday." What happened next remains vivid in many investors' memories.

The concern now is that the same conditions are reassembling. Will the yen carry trade unwind — a recurring alarm that resurfaces every year — actually materialize this time?

Answering that question requires a clear understanding of what the yen carry trade actually is. The concept is straightforward. Japan has been among the world's lowest-rate economies for decades, having endured zero and even negative interest rates.

Other countries, led by the United States, maintained far higher rates. That gap creates a simple arbitrage opportunity: borrow in yen at near-zero cost and invest the proceeds in higher-yielding dollar assets — US Treasuries, equities, emerging-market bonds and the like.

The profit is essentially the spread between the funding cost (Japan's rate) and the investment return (the foreign rate). Borrowing in a low-rate currency to invest in higher-yielding assets is called a carry trade; because the funding currency here is the yen, it is known as the yen carry trade.

There is one additional prerequisite for the trade to work: the exchange rate must remain relatively stable. No matter how wide the rate differential, a sharp yen appreciation can wipe out accumulated interest gains in an instant, since repaying the yen-denominated loan becomes far more expensive.

In short, the yen carry trade runs safely only when two conditions hold simultaneously — low Japanese rates and a stable exchange rate. For years, the Bank of Japan's ultra-loose policy and the yen's gradual depreciation kept both conditions in place, allowing the trade to spread widely across global financial markets.

The trouble begins when either of those two conditions breaks down. A faster-than-expected rise in the yen can flip the situation almost instantly. Borrowers owe yen, and if the yen becomes more expensive to buy back, exchange-rate losses can quickly outstrip the interest-rate gains.

That is when the carry trade unwind begins. The real burden of yen-denominated debt grows while the expected return from the carry trade shrinks. Investors rush to close their positions — selling the foreign assets (US Treasuries, equities and so on) they had accumulated, converting the proceeds back into yen to repay their loans.

The problem is that this selling happens all at once and in the same direction. When large numbers of investors try to reverse their positions simultaneously, asset prices can collapse rapidly, and that collapse amplifies volatility, triggering further leveraged liquidations in a self-reinforcing cycle.

This is what analysts call "mechanical deleveraging." The key variable determining the scale of market disruption is not the exchange-rate move itself, but how quickly and how massively the crowded positions unwind.

The most dramatic illustration of this mechanism came in the summer of 2024. A surprise Bank of Japan rate hike triggered a yen carry trade unwind that sent volatility surging in a matter of days. The shock did not stop at yen strength and a plunging Nikkei — it crossed the Pacific, hitting the NASDAQ and domestic equity markets as well.

Looking back, the trigger was pulled in the futures market. Participants had been piling one-sidedly into yen short positions, convinced the yen would keep weakening. As of July 2, 2024, the non-commercial net short position in yen futures had reached 2.3 trillion yen.

When the Bank of Japan raised rates earlier than the market anticipated and the yen surged without warning, the market was caught flat-footed. The massive short positions that had built up were liquidated all at once, and the fallout quickly spiraled out of control. By Aug. 6, 2024 — the day after Black Monday — the net short position had shrunk to just 100 billion yen. More than 2 trillion yen in positioning had evaporated in little over a month.

The key lesson from that episode is this: the carry trade unwind shocked markets not simply because the yen strengthened, but because a massive short position had accumulated at a time when the market had no expectation of that strength. The rate hike and the exchange-rate move pulled the trigger, but the fuse was the net short position that had been building all along.

When the Bank of Japan's rate hike came into view last year, markets were on edge for a time. Fears of a repeat of the 2024 nightmare surfaced widely. Yet when it actually happened, the outcome was the opposite. The Bank of Japan lifted its benchmark rate to 0.75% — the highest in 30 years — but the Kospi and other Asian equity markets passed through the event without significant turbulence, and the yen-dollar rate moved only modestly.

Again, futures positioning was the key. As of March 4 last year, the non-commercial net position in yen futures was actually a net long of 1.7 trillion yen. The market had already priced in the rate hike and the resulting yen strength, building yen-long positions in advance. With no fuse in place, there was nothing to ignite. When the December rate hike materialized, the feared carry trade unwind never came.

This summer, however, the picture has shifted again. Speculative net short positions in the yen have been expanding rapidly. Non-commercial positioning, which was still net long as recently as late February, flipped to net short in March and surpassed 150,000 contracts on the short side by June 30 — a pace of buildup comparable to the period just before the 2024 unwind.

More striking is the absolute level. As of July 21, short positions were approaching 260,000 contracts — roughly 18 percent above the peak reached on July 2, 2024.

Particularly notable is June 16, when short positions exceeded 260,000 contracts to set an all-time record — and that day happened to be the very day the Bank of Japan raised its policy rate. Despite a rate hike that might have been expected to deter yen-weakness bets, the market's short positioning hit a historic high. As the latest CFTC data (as of Tuesday) confirm, the aggregate net short position has already surpassed 2 trillion yen.

Short positions pulled back somewhat over the three prior weeks amid wariness about currency-authority intervention, but rebounded sharply in the week of July 21 as the market renewed its yen-weakness bets ahead of the monetary policy meeting.

The 2024 experience shows how quickly such crowded positioning can reverse. That year, a net short of 180,000 contracts in July flipped to a net long of 20,000 contracts in August — a swing of roughly 200,000 contracts in just five weeks. As that reversal unfolded, the yen-dollar rate fell sharply and the shock spread from the yen and the Nikkei to the NASDAQ and domestic equity markets.

Ha Geon-hyeong, a researcher at Shinhan Investment, said that if the Bank of Japan accelerates its policy normalization, "the concentrated yen short positions could unwind, causing a temporary sharp drop in the yen-dollar rate, and the unwinding of positions linked to yen weakness could amplify market volatility" — a scenario he described as a replay of July–August 2024.

Kim Sung-hwan, also a researcher at Shinhan Investment, said a reversal toward yen strength "could prompt hedge funds to further reduce their equity long positions," adding that "equity markets already went through a similar experience in July 2024."

The 2024 unwind left a mark not only on market participants. The Bank of Japan drew sharp criticism for rattling global markets with an unexpected rate hike, and that experience fundamentally changed how monetary authorities communicate. Having been through that ordeal once, policymakers have little incentive to repeat the same mistake.

Authorities have already begun acting preemptively. The United States and Japan recently intervened jointly in currency markets by buying yen, after the yen-dollar rate approached 164 yen — its weakest level in roughly 40 years — and officials concluded that excessive yen weakness could no longer be tolerated.

Japanese Finance Minister Satsuki Katayama said in a recent statement that authorities had acted to address excessive and disorderly yen movements and would not hesitate to intervene jointly again if needed. US Treasury Secretary Scott Bessent publicly confirmed the intervention. The joint yen-buying operation was the first such coordinated action since 1998, during the Asian financial crisis — an extraordinary step by any measure.

Paradoxically, allowing the yen to weaken unchecked could actually increase the risk of a carry trade unwind. A prolonged yen depreciation pushes up import prices, which in turn brings forward the timeline for Bank of Japan rate hikes. With yen short positions heavily skewed in one direction, analysts say the joint intervention reflects an underlying concern about exactly that scenario — that an uncontrolled yen slide could ultimately trigger the very unwind authorities are trying to prevent.

The Bank of Japan's own posture points in the same direction. Securities analysts broadly expect the central bank to hold rates steady at this month's monetary policy meeting.

The more important question is not whether rates are raised but what guidance the Bank of Japan offers on the pace of future hikes. Markets are currently pricing in a relatively gradual path — roughly one hike every six months, in October or December. The case for tightening is already well established, with the business sentiment index at its highest since 2000 and real wages continuing to rise, but the Bank of Japan may opt for a gradual and flexible approach to avoid delivering an unexpected shock to markets.

Ha at Shinhan Investment laid out three scenarios. The most likely outcome, which he assigned a 50 percent probability, is a hold accompanied by a hawkish tone. In that case, the yen-dollar rate would edge higher, the Nikkei would continue to rise, and the impact on the NASDAQ and the Kospi would be minimal.

The second scenario, assigned a 40 percent probability, is a hold paired with signals of a faster pace of future hikes. Under this path, the yen-dollar rate could be pushed back to the 150-yen range and the Nikkei could face a single-digit percentage correction, with temporary sentiment-driven co-movement in the NASDAQ and domestic equities.

The third and least likely scenario — assigned a 10 percent probability — is a surprise rate hike, which could push the yen-dollar rate toward 150 yen and trigger a double-digit correction in the Nikkei.

Ha said that even if rates are held, a faster signaled pace of hikes "would lead to a Nikkei correction amid yen strength," but added that "the NASDAQ and domestic markets would see only a partial spillover of volatility — nothing like the scale of the 2024 correction." He said that even if the yen turns stronger, "the market impact will be limited."